Most creditors don’t have the right to garnish (serve notice) Social Security benefits. That’s why these benefits cannot be used to settle mortgage or medical debts.
The federal government can garnish the Social Security Disability Income (SSDI) under certain circumstances, but the same doesn’t apply to the Supplemental Security Income (SSI). Hence, the IRS can take a percentage of your Social Security money to collect an outstanding tax debt.
Luckily, there are numerous things you can do to prevent this from happening. In this article, we’ll clarify when the IRS can garnish Social Security and tell you about things you should do in such situations.
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Table of Contents
Social Security Benefits Garnishment Rules
Your Social Security benefits are safe from creditors. For instance, if you owe state taxes, the state cannot garnish your SSDI to collect the debt. The same applies to credit card companies, hospitals, and mortgage companies.
Moreover, your Social Security benefits won’t be garnished even if you’re convicted of a wrongful death. These payments are also unavailable to creditors once they reach your bank account, and consequently, they cannot be levied.
The bank must review your account for direct deposits of Social Security benefits if a creditor attempts to garnish these payments and allow you to access the funds you received in the last two months.
The protection you’ll get from the bank has boundaries. Suppose you opt to receive Social Security benefits as paper checks; in that case, you’ll expose yourself to the risk of having these funds garnished.
However, you can still take steps to stop this, but in most cases, you’ll have to go to court and prove that your Social Security benefits were garnished. Hence choosing direct deposit instead of paper checks will ensure that your Social Security benefits cannot be garnished for at least two months.
Social Security Garnishment Exceptions
Every rule has exceptions. The same is true for Social Security benefits garnishment rules.
- Exception No.1 – The federal government can garnish your Social Security benefits to collect a tax debt.
- Exception No.2 – Individuals with court rulings for child support or alimony have the right to garnish their Social Security benefits.
These exceptions only apply to Social Security Disability Income (SSDI) and Social Security Retirement Income, which means your Supplemental Security Income (SSI) is safe regardless of the circumstances.
According to the Internal Revenue Code Section 6334(e), the SSI cannot be used to collect child support, alimony, or federal tax debts.
On the other hand, the benefits taxpayers over the age of 62 or with 40 Social Security credits receive can be garnished due to these two exceptions.
Understanding the IRS Social Security Levy
The IRS chooses to levy funds or assets after a long period of taxpayer inactivity.
The due balance will be assigned to your tax account if you file a tax return or the IRS files an SFR for you. Once the IRS processes your return and adds it to the IMF system, you’ll receive Notice CP14 if you don’t take steps to settle the due balance.
This notice contains information about the taxes, penalties, and interests you owe to the government and gives you a three-week deadline to pay the debt. The IRS will send you Notice CP501 after five to six weeks if you choose to ignore Notice CP14.
A few weeks later, you’ll receive Notice CP503 that iterates the demands the IRS has made in the previous notice, only on a more serious note.
At the end of this process, you’ll get Notice 504 that informs you that the IRS intends to levy or seize your state tax and all other funds or assets necessary to cover your tax debt.
In case you opt to ignore this notice as well, the IRS will send you the LT11 – Intent to Seize Property or Rights to Property letter that lists all property the IRS can seize, including the Social Security benefits.
Notice CP91
If you don’t take any action to resolve the tax issue with the IRS within the 30-day legal timeframe, Notice CP91 will show up in your mailbox before the IRS starts garnishing your SSDI benefits.
The notice will inform you that the IRS intends to seize up to 15% of your Social Security benefits and advise you to pay your federal taxes along with penalties and interests immediately.
Suppose you owe federal business tax, and the IRS can collect the debt from you as an individual taxpayer; in that case, you’ll receive Notice CP298, which is almost identical to Notice CP91.
The Federal Payment Levy Program
We won’t deal with the history of the Federal Payment Levy Program (FPLP) here. Instead, we’ll focus on the payments that can be levied through this program:
- Federal employee retirement annuities
- Federal payments made to you as a contractor
- Federal employee travel advances or reimbursements
- Certain Social Security benefits
- Some federal salaries
- Medicare provider and supplier payments
- Railroad Retirement Board benefits
- Military Retirement
As you can see, the FPLP gives the IRS the right to levy certain Social Security benefits paid to you. The maximum amount the IRS can garnish is 15% of the Social Security benefit payments you receive every month.
This sum is deducted from your monthly payments automatically. However, the program only permits the IRS to garnish SSDI payments, so if you’re eligible for SSI, you’ll continue to receive the full amount on these payments.
Moreover, the IRS might opt to levy SSDI manually. In this case, some social benefit payments, such as benefits paid to children, might be exempt from levy.
It’s also worth mentioning that the first $750 of the monthly Social Security income isn’t protected from levying for the federal tax debt collection compared to other types of federal government debts.
Consequently, the IRS will seize 15% of your Social Security benefit payments even if it reduces your monthly Social Security income to less than $750.
How to Stop the IRS from Garnishing Your Social Security Benefits?
Time is of the essence if you have already received Notice CP91 because the IRS already intends to garnish your Social Security benefits and other assets.
Here’s what you can do to stop the IRS from taking a percentage of your SSDI.
- The first step is to check if all the information in Notice CP91 is accurate and report any mistakes you detect to the IRS.
- You’ll find the contact number on Notice CP91. Reach out to the IRS and work with them on amending the errors you detected.
- Seek penalty abatement if some of the information in Notice CP91 was inaccurate.
You’ll have two options if the review of Notice CP91 doesn’t reveal any inaccuracies. You can either pay the debt in full or seek tax relief.
Applying for an offer in compromise is arguably the best course of action if you don’t want to pay the due balance in full. You can use the Offer in Compromise Pre-Qualifier tool on the IRS website to determine if you’re eligible to apply.
However, if you don’t qualify to apply for an offer in compromise, you’ll have the following options:
- Arrange an Installment Agreement with the IRS
- Apply for the Currently Not Collectible status
Frequently Asked Questions
The IRS cannot garnish SSDI payments before notifying the taxpayer. Consequently, you’ll receive several notices from the IRS before they levy your funds.
The IRS will continue garnishing your Social Security payments until the due tax balance is paid in full.
In most cases, the FPLP levies Social Security payments automatically, which means you cannot negotiate the percentage withheld from these payments.
However, you may be able to negotiate the garnishment percentage if the IRS chooses to levy your Social Security payments manually.
You’ll have thirty days to respond to each notice the IRS sends you. Hence, you’ll have several months before the IRS starts levying your SSDI payments.
Contact a CPA
Even though Social Security benefits are almost always protected from creditors, the IRS still has the right to garnish them if you choose to ignore their notices for too long.
Reach out to a CPA at choicetaxrelief.com or call 866-800-TAX for a free consultation if you need assistance preventing the IRS from garnishing your SSDI payments.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
